Eller, Urs v Cheong Kiat Wah

JurisdictionSingapore
JudgeVincent Hoong J
Judgment Date21 May 2020
Neutral Citation[2020] SGHC 106
CourtHigh Court (Singapore)
Hearing Date19 February 2020,11 November 2019,13 November 2019
Docket NumberSuit No 176 of 2019
Plaintiff CounselCai Enhuai Amos and Wong Changyan Ernest (Yuen Law LLC)
Defendant CounselPang Khin Wee (Peng Qinwei) (Hoh Law Corporation)
Subject MatterTrusts,Breach of trust,Evidence,Admissibility of evidence,Opinion and belief,Prior negotiations,Equity,Defences,Acquiescence,Laches,Waiver,Estoppel,Promissory estoppel,Remedies,Account,Equitable compensation,Civil Procedure,Bifurcation of proceedings
Published date27 May 2020
Vincent Hoong J: Introduction

The defendant set up a company to distribute medical devices in Malaysia. The plaintiff, who was the defendant’s friend and former colleague, was interested in becoming a shareholder in the defendant’s company but could not formally register his shareholding due to a contractual non-compete duty which he owed to his former employer. To circumvent this problem, the parties executed a trust deed creating an arrangement whereby the defendant held 50 shares in the company on trust for the plaintiff.

Shortly after the execution of the trust deed, the defendant caused the company to issue 350,000 additional shares in his own name. The plaintiff contends that this was a breach of the terms of the trust deed, which provided, inter alia, that the defendant could not increase the amount of the company’s share capital without the plaintiff’s agreement. He seeks equitable compensation for the loss which he has allegedly suffered from the dilution of his shareholding without his consent. The defendant counters that the plaintiff knew and approved of this share issuance, and/or that the plaintiff is in any event barred from relief due to the applicability of various defences.

Having carefully considered the evidence and the submissions before me, I find that the plaintiff succeeds on the issue of liability but not on the issue of quantum as claimed. In the interest of fairness, I order that a separate assessment be held to ascertain the quantum of compensatory relief (if any) payable by the defendant to the plaintiff. The grounds for my decision are set out below.

Facts Background to the dispute

The plaintiff is a Swiss national who is currently working in Singapore.

The defendant is a Malaysian citizen who is presently working and residing in Malaysia.

The plaintiff and the defendant first met each other in mid-2011. During this time, the plaintiff was employed by Sonova Holding AG (“Sonova”), a Switzerland-incorporated company which specialises in manufacturing and distributing hearing aid devices.1 The defendant was employed by Phonak Singapore Pte Ltd (“Phonak”), Sonova’s Singapore-incorporated subsidiary.2 The defendant managed Sonova’s Malaysian sales and reported directly to the plaintiff, who was one of Sonova’s regional managers.

In or around April 2014, the defendant decided, on the advice of Sonova’s headquarters, to incorporate a company in Malaysia to take over the distribution of Sonova’s products in the Malaysian region.3 The defendant began to explore possible options to finance this company as he knew that its start-up costs would be substantial.

The plaintiff expressed a keen interest in investing in the defendant’s company. After discussion, both parties agreed that they would each invest MYR350,000 in the company as start-up capital.4 Based on this agreement, the defendant proceeded to register Swiss Medicare Sdn Bhd (“the Company”) on 19 September 2014.5 The Company had 100 shares at the time of its incorporation, which were allotted as follows: 80 shares to the defendant; ten shares to the defendant’s wife, Ms Tan Poh Guan; and ten shares to the defendant’s mother, Ms Tan Kim Siew.

Subsequently, the parties separately consulted their solicitors on the possible ways in which they could formalise their joint investment in the Company. In or around early November 2014, the defendant instructed his solicitors, M/s Anuar Yusof & Partners, to draft a partnership agreement (“the Proposed Partnership Agreement”), which was presented to the plaintiff for his consideration. The terms of the Proposed Partnership Agreement provided, inter alia, that the plaintiff and the defendant would each hold 350,000 shares in the Company.6

At the material time, the plaintiff owed a contractual non-compete duty to Sonova which prohibited him from, inter alia, directly holding shares in the Company until end-2015.7 As such, the plaintiff declined to accept the Proposed Partnership Agreement. Instead, he proposed an alternative arrangement whereby the defendant would hold 50 of the Company’s shares, being 50% of the Company’s shareholding at the material time, on trust for the plaintiff. The plaintiff would then loan a sum of MYR350,000 to the defendant in his personal capacity. It was mutually understood that the parties would use the loan monies to further the Company’s business.8

The defendant agreed to the plaintiff’s proposal. Accordingly, the parties executed a loan agreement (“the Loan Agreement”) for a sum of MYR350,000 (“the Loan Sum”), as well as a trust deed (“the Trust Deed”), dated 29 November 2014 and 30 November 2014 respectively.9

he material terms of the Trust Deed

It is undisputed that the Trust Deed created an express trust in favour of the plaintiff. The terms of the Trust Deed which are material to the present dispute are as follows:10 DECLARATION OF TRUST

The Nominee declares that he: holds 50 ordinary shares in the Company (the “Shares”) as nominee and on trust for the Beneficial Owner; and has no beneficial interest in the Shares.

DIRECTORSHIP

The Nominee shall, in relation to the Reserved Matters, exercise his rights as the legal and beneficial shareholder of the ordinary shares in the Company in agreement with the instructions of the Beneficial Owner. For the purposes of this clause 3, “Reserved Matters” shall mean:

Increase the amount of the Company’s issued share capital [except as provided in this agreement], granting any option or other interest (in the form of convertible securities or in any other form) over or in its share capital, redeeming or purchasing any of its own shares or effecting any other reorganisation of its share capital, including and not being limited to the transfer of the legal and/or beneficial interests in the shares of the Company held in the Nominee’s name from the Nominee to any other person, including existing shareholders;

[emphasis added]

Issuance of shares by the Company

Shortly after receiving the Loan Sum from the plaintiff, the defendant caused the Company to allot an additional 350,000 shares to himself through an ordinary resolution dated 15 January 2015 (“the Share Issuance”).11 Consequently, the Company’s share capital was increased from 100 shares to 350,100 shares.

The plaintiff avers that the Share Issuance was unauthorised and that he had no knowledge of the Share Issuance until his solicitors sent him a search result of the Company from the Companies Commission of Malaysia (“the Business Profile”) on 29 June 2018. The Business Profile confirmed that the defendant had held a total of 350,080 shares in the Company since January 2015.12

The defendant disputes the plaintiff’s alleged ignorance of the Share Issuance. He contends that the plaintiff must have known of the Share Issuance since the plaintiff was provided with the Company’s audited financial reports from as early as 15 February 2016. These reports contained information on the number and allotment of the Company’s shares after the Share Issuance.13

Events leading up to the present action

From 2015 to 2018, the defendant ran the day-to-day operations of the Company while the plaintiff assisted in maintaining the Company’s network and distribution portfolio.14 The plaintiff was formally appointed as a director of the Company on 15 January 2016.15

In or around early August 2018, the plaintiff and the defendant had a disagreement over the plaintiff’s refusal to sign off on several directors’ resolutions which required his approval.16 The relationship between the parties deteriorated soon thereafter.

On 23 August 2018, the plaintiff through his solicitors sent a letter to the defendant which, inter alia, recalled the Loan Sum with interest of RM602,129.67 (“the Disputed Interest Sum”). Subsequently, a general meeting was convened to remove the plaintiff from his position as director.17 The plaintiff ceased to be a director of the Company with effect from 23 October 2018.

The defendant repaid the Loan Sum in full but declined to pay the Disputed Interest Sum as he was of the view that it had been erroneously calculated. On 20 December 2018, the defendant through his solicitors sent a letter to the plaintiff setting out what he believed to be the correct interest sum.18

The plaintiff subsequently abandoned his pursuit of the Disputed Interest Sum and focused his attention on the Share Issuance instead. On 18 January 2019, the plaintiff through his solicitors sent another letter to the defendant, alleging that the defendant had breached the Trust Deed by effecting the Share Issuance without the plaintiff’s prior consent.19 On 11 February 2019, the plaintiff commenced the present action, seeking equitable compensation and/or an order for the defendant to buy out his shares in the Company.

The parties’ cases The plaintiff’s case

The plaintiff’s claim is a straightforward action for breach of the Trust Deed. Specifically, the plaintiff alleges that the defendant breached Clause 3.3 (read with Clause 3.4(b)) of the Trust Deed by causing the Company to execute the Share Issuance without the plaintiff’s authorisation.20

The plaintiff’s case essentially hinges on his assertion that he was not notified of and did not consent to the Share Issuance at any point in time.21 In support of this position, the plaintiff relies on, inter alia, evidence which allegedly demonstrates that the parties were intended to be “equal partners” in the Company at all material times.22

The defendant’s case

As a preliminary matter, the defendant seeks to expunge certain portions of the plaintiff’s Affidavit of Evidence-in-Chief (“AEIC”), on the basis that they constitute inadmissible evidence.

On the question of liability, the defendant contends that he did not breach the terms of the Trust Deed...

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